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Speaker 1: This is Bloomberg Surveillance. We think that the FED will

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Speaker 1: be able to achieve its target over the medium term.

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Speaker 1: Core inflation has already started to pick up. Monetary policy

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Speaker 1: has been relatively ineffective, unique fiscal policy. I think something

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Speaker 1: actually like utilities, which has been a sector that's spreading

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Speaker 1: only on popular is going to continue to surprise on

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Speaker 1: the upside. Bloomberg Surveillance your link to the world of economics, finance,

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Speaker 1: and investment on Bloomberg Radio. Good morning everyone, Michael McKee

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Speaker 1: and Tom King, Bloomberg Surveillance Worldwide. Good morning, Bloomberg twelve

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Speaker 1: U in Boston, FM Washington and Baltimore, Bloomberg eleventh three

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Speaker 1: on New York. Good early morning in San Francisco, the

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Speaker 1: Bay Area, of course, all of you listening across the

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Speaker 1: nation and UH in Canada's series x M Channel one

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Speaker 1: nineteen worldwide. I was stun Mike at the number of

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Speaker 1: comments in the Caribbean over people listening every day to

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Speaker 1: what we who. It was really humbling. Well, let's all

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Speaker 1: around the world. We'll send you back out. I don't know,

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Speaker 1: you know, it's just it was just great to see

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Speaker 1: the global distribution al from New Jersey and others here

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Speaker 1: and put together a distribution platform for a conversation. We

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Speaker 1: hope you enjoy it. This morning. Bloomer Surveillance is always

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Speaker 1: brought you by cone Resnick Accounting, Tax Advisory. During the

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Speaker 1: times of growth, crisis, are economic uncertainty, your business needs

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Speaker 1: the cone Resnick Advisory Group for the strategies to move forward.

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Speaker 1: Find out more at cone Resnick dot com, c O

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Speaker 1: h n R e z n I, c kN dot com.

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Speaker 1: Modest hysteria this morning over Puerto Rico. It is good

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Speaker 1: to get perspective from somebody that actually knows what they're

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Speaker 1: talking about. That would not be me, Mike, it would

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Speaker 1: be John Miller of Nouvene, who's truly expert on this

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Speaker 1: and he spoke to you last week, didn't give us

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Speaker 1: a clinic last week, and now we have him back

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Speaker 1: because we have new developments. As they say on the

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Speaker 1: on the on the cable TV networks, UH, yesterday was

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Speaker 1: a day. They have until the end of today to

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Speaker 1: actually make a payment. The Government Development Bond GOOD Bank

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Speaker 1: in Puerto Rico has four and twenty two million dollar

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Speaker 1: bond payment due by the end of today, which the

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Speaker 1: governor said last night on the Telly, they're not going

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Speaker 1: to make But then at midnight last night they made

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Speaker 1: a deal, the Government Development Bank Tentative Framework Agreement with

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Speaker 1: investors holding some of its debts. So what does that

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Speaker 1: deal mean and what does the overall UH situation in

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Speaker 1: Puerto Rico amount to. John, Let's let's start with the basics. Uh.

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Speaker 1: When the the governor says we're not going to make

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Speaker 1: the payment under a debt moratorium law that the Puerto

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Speaker 1: Rican legislature approved last month, is that the same thing

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Speaker 1: as saying we're going to default or is it something different?

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Speaker 1: It is the same thing. There's uh uh. The amount

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Speaker 1: of g dB debt or Government Development Bank debt outstanding

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Speaker 1: is about seven billion, and the actual payment due today

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Speaker 1: is about four two millions, So there uh. They are

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Speaker 1: meeting a couple of last minute forbearance agreements with some

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Speaker 1: of those bondholders, but apparently not nearly enough to uh

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Speaker 1: to cover the entire payment. So this will this will

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Speaker 1: be in all likelihood, this will be a Government Development

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Speaker 1: Bank default, which is a larger type of default than

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Speaker 1: what we've seen from Puerto Rico over the past year,

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Speaker 1: even though they've been in crisis. What does it mean

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Speaker 1: then well, I think that it's uh. First of all,

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Speaker 1: it was telegraphed. It was about a year ago that

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Speaker 1: the governor said the debt is unpayable. It was about

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Speaker 1: a month ago that they said, we're going to give

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Speaker 1: ourselves the ability to selectively not pay certain bond issues. Uh.

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Speaker 1: So it's they contin innuation of an ongoing reality that

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Speaker 1: they don't have the revenues to meet all their budgetary

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Speaker 1: expenses and paid debt service at the same time. There

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Speaker 1: isn't a existing structure right now to negotiate with all

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Speaker 1: creditors at the same time. So therefore they're selectively picking

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Speaker 1: out which bonds to pay and which bonds to not pay. John,

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Speaker 1: you know, I look at this and I forget that.

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Speaker 1: John Levine Sr. Form Vine in eighteen e wrote in

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Speaker 1: New Mexico Highway Bond You've seen things go bust a

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Speaker 1: few times across that Movine history. What's distinctive about this

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Speaker 1: pending collapse of Puerto Rico. Well, this is so much

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Speaker 1: larger than anything that we have seen in the municipal

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Speaker 1: bond market. If you, uh, if you add up the

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Speaker 1: the roughly seventy two billion in uh in debt plus

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Speaker 1: the four billion in and fun and pension liabilities. And

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Speaker 1: it is, Uh, it's more complicated. It's more complicated because

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Speaker 1: they're eighteen different types of bonds. Isn't it more complicated

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Speaker 1: because Congress is involved? Isn't that the elephant in the

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Speaker 1: new vene room. Well, Congress getting involved is actually in

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Speaker 1: an effort to simplify things. The Congress getting involved would

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Speaker 1: establish at least based on the leading bill from the

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Speaker 1: House Natural Resources Committee right now, which is still being

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Speaker 1: edited and probably still passes at some point. That would

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Speaker 1: be a positive because it would create some semblance of

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Speaker 1: order out of disorder that we have now, which is

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Speaker 1: to create a financial control board and figure out what

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Speaker 1: they can pay overall. Yeah, because they have these eighteen

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Speaker 1: different entities with debt out there um, some of which

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Speaker 1: can be paid, some of which can't. I was interested

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Speaker 1: in the Bloomberg story of Michelle Kosky from Bloomberg News,

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Speaker 1: always brilliant on what's going on in Puerto Rico. She

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Speaker 1: went and called up the holders of the bond that

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Speaker 1: do today and we've been told that the vulture hedge

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Speaker 1: funds have been the ones who have been buying up

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Speaker 1: all the Puerto Rico paper but this one is largely

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Speaker 1: owned by money management firms and insurance companies. Well, it's

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Speaker 1: the ownership structure is very diverse and and it also

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Speaker 1: depends on the specific indenture that that has proven to

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Speaker 1: be attractive to different groups of two different groups of investors.

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Speaker 1: Over time, According to the Treasury Department, hedge funds have

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Speaker 1: been bought up to around a third or so of

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Speaker 1: the overall debt of the overall debt of the of

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Speaker 1: Puerto Rico. More of their investments are probably in the

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Speaker 1: general obligation debt as opposed to Government Development Bank. Yeah,

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Speaker 1: the Government Development Bank seems to be And I'm just curious.

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Speaker 1: This gets to the question of who loses, and if

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Speaker 1: it's insurance companies, and some of them are related to

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Speaker 1: pension funds in the United States, what's the danger that

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Speaker 1: Puerto Rico defaulting on debt will cause knock on effects

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Speaker 1: for retirees or other investors in the United States. Well,

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Speaker 1: from an income perspective, that might be. What's changing, I

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Speaker 1: would say from a mark to market perspective, because this

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Speaker 1: crisis has been unfolding over the last two and a

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Speaker 1: half years, these, for example, government development bond prices have

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Speaker 1: already been around twenty cents on the dollar prior to today.

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Speaker 1: So if if insurance companies, at pension funds, at individual holders,

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Speaker 1: mutual funds, hedge funds are marking everything to market, today

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Speaker 1: might not be a major swing necessarily because because there

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Speaker 1: the bonds are already at cents on the dollar. What

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Speaker 1: does this mean for our listeners who own national or

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Speaker 1: even Puerto Rico specific God love you, UH mutual funds

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Speaker 1: where managers are moving in and out, and specifically, what

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Speaker 1: does it mean for unit trust where our listeners own

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Speaker 1: fixed portfolios of municipal paper. Well, it's important to look

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Speaker 1: at the disclosure and the holdings of these different of

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Speaker 1: these different products. And again, part of this unfolding process,

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Speaker 1: over the last two and a half years, UH, people

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Speaker 1: have tracked which funds are heavy Puerto Rico investing funds,

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Speaker 1: which funds are are light, which funds are moving out

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Speaker 1: and in. From that perspective, more and more mutual funds

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Speaker 1: have moved out and investors have shift funds into shift

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Speaker 1: their own money into those funds that have lower exposures.

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Speaker 1: So that should help. That should help is a speculative

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Speaker 1: hedge fund industry that's wrapped up in Puerto Rico. Are

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Speaker 1: they new Vine's friend enemy, Are they an opportunity? How

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Speaker 1: do you frame that? Well? Not necessarily, not necessarily either.

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Speaker 1: I mean, Nuvine has been looking at the fundamentals of

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Speaker 1: Puerto Rico from a bond investing perspective, and we would

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Speaker 1: invest their part actually in the future. But over the

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Speaker 1: last two years we have, uh, well two and two

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Speaker 1: and a half years ago, we took our holdings down

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Speaker 1: very close to zero and entirely ensured. So that it's

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Speaker 1: because of the fundamentals, not because of hedge funds or

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Speaker 1: who might be getting involved or who might not be

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Speaker 1: getting involved. Really because of the deteriorating fundamentals made apparent

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Speaker 1: that they weren't going to be able to pay all

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Speaker 1: their debt. Coming out of this, maybe that there could

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Speaker 1: be a new bond that might be more interesting at

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Speaker 1: the economy stabilizers, But what we're really worried about now

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Speaker 1: is economic decline actually accelerating in part because the government

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Speaker 1: development ban is impaired. What a shock, I mean to

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Speaker 1: actually look at the real economy. John Miller with us,

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Speaker 1: He's code of fixing and for all of Davine just

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Speaker 1: trying to give you a lack of hysteria, just careful

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Speaker 1: analysis of Puerto Rico. I believe, Mike, there's a whole

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Speaker 1: another municipal bond market out there that's Puerto Rico. Will

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Speaker 1: will will draw the connection coming up in just a moment.

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Speaker 1: We have some This isn't a merger Monday story. It's

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Speaker 1: just a sale, but it's a very large one. Warehouser

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Speaker 1: is going to sell its cellulose fibers pulp mills to

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Speaker 1: International paper. Uh. The cost is two point two billion

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Speaker 1: dollars and then they're going to pay down debt with

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Speaker 1: that one with one point six They have one point

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Speaker 1: six billion in debt, so the money they're getting. So

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Speaker 1: that's interesting because um, we're seeing Baker Hughes using its

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Speaker 1: breakup fee from Haliburton to pay down debt. So UH,

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Speaker 1: companies also doing what you know the average person is doing.

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Speaker 1: Some I think synergy will be uh we're used in

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Speaker 1: the coming days. I p uh as well features up

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Speaker 1: seven futures advance right now down futures up up forty seven.

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Speaker 1: This news update brought to you by a Tito Computing,

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Speaker 1: dot com For more information, here's Michael Barr with news

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Speaker 1: headlines by Tom, Thank you very much. Republican presidential front

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Speaker 1: runner Donald Trump is predicting a knockout load tomorrow in

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Speaker 1: the Indiana primary. He says a win for him equals

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Speaker 1: the end for Ted Cruise. But there is a catch.

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Speaker 1: Trump can't win enough delegates in Indiana to actually clinch

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Speaker 1: the Republican nomination, but after his wins in five states

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Speaker 1: last week, he has more of a cushion. A second

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Speaker 1: day of talks in Geneva is focusing on preventing the

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Speaker 1: Syria truce from collapsing amid continuing attacks in Aleppo. Secretary

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Speaker 1: of Stage John Kerry met today with a Saudi foreign minister.

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Speaker 1: Passengers on board the Carnival cruise ship Adonia are heading

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Speaker 1: to Cuba. It is the first cruise to leave from

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Speaker 1: a USC port for Cuba in decades. Global News twenty

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Speaker 1: four hours a day, powered by our two journalists. I'm

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Speaker 1: Michael Barr, Tom and Michael Barr. Thanks so much. The

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Speaker 1: headline number here gold up a solid fifteen dollars thirteen

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Speaker 1: zero five pounds. We say good morning to James Steele

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Speaker 1: of h g's HSBC Nailed Dot Call. Tomorrow big day

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Speaker 1: the presidential primary in Rachel's Indiana. We'll talk with Wendy

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Speaker 1: Schiller of Brown University about whether it's all over but

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Speaker 1: the shouting after the Hoosiers talk. We global business news

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Speaker 1: twenty four hours a day. If Bloomberg dot Com, the

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Speaker 1: radio plus mobile app and on your radio. This is

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Speaker 1: a Bloomberg Business flash and I'm carrying Moscow future is

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Speaker 1: moving higher this morning. Let's go to the First Word

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Speaker 1: Breaking news desk for today's morning call. Here's Bill Maloney.

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Speaker 1: Good morning Bill, Good morning Karen. That's right. US futures

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Speaker 1: have added to their game since the last time we spoke.

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Speaker 1: Dea features currently hired by forty one point SASPS game

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Speaker 1: five and a half and as the futures rise by nine.

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Speaker 1: The US Daniel at one point eight one and main

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Speaker 1: europer markets remain mixed this morning. On the US economic front.

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Speaker 1: At eight fifty FEDS, Lockhart speaks in Florida at Market

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Speaker 1: US Manufacturing p M I and at ten o'clock U

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Speaker 1: s M Manufacturing and Construction spending regarding earnings today, Domino

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Speaker 1: short and helmerk and Pain revenue beat and a deal

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Speaker 1: knows Howibert and Bicker Hughes called off their merge agreement

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Speaker 1: and Oracle buys o Power for ten thirty a share. Finally,

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Speaker 1: some of your wall sheet upgrades and downgrades. Cynics cut

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Speaker 1: to neutral at City Group, at Goldman Sachs Colgate, Paul

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Speaker 1: Ov raised to neutral, United Technologies cut to neutral. Time

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Speaker 1: want to cut the sectuated, Pacific Crest and Groupon cut

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Speaker 1: to underperformed at RBC Live on the First Breaking News

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Speaker 1: Desk on Bill Maloney Cairn very thanks bail to hear

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Speaker 1: live breaking news over your Bloomberg type squawk and go

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Speaker 1: on your terminal. That's s q u A w K

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Speaker 1: go and that's a Bloomberg business flash. Tom and Mike Karene,

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Speaker 1: thanks so much again. Futures of Dance up to earlier,

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Speaker 1: up six right now. Bloomberg Surveillance this morning brought you

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Speaker 1: at investco dot com Slash High Conviction. Michael McKee and

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Speaker 1: Tom Key were taking advantage of tax free bonds with

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Speaker 1: John Miller of Nuvine Michael expand the horizon away from

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Speaker 1: San Juan. I do want to ask John about this

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Speaker 1: deal that was reached overnight, came out at midnight UM

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Speaker 1: an agreement with investors who hold about nine hundred million

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Speaker 1: dollars of the Government Development Bank. You say this doesn't

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Speaker 1: cover everybody, though, what does it cover? Who does it

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Speaker 1: cover and how's it going to affect what's going on? Well,

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Speaker 1: they the hedge funds reportedly own about uhent of the

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Speaker 1: of the GDP debt and they can enter into their

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Speaker 1: own forbearance or what interest was due, so a hundred

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Speaker 1: million out of the folli um they can enter in

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Speaker 1: their own forbearance, in other words, not not declare default,

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Speaker 1: not go after the GDP for the money right now.

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Speaker 1: So they apparently they have a thirty day uh sort

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Speaker 1: of window. During that thirty day window, they might negotiate

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Speaker 1: some sort of recovery, some sort of exchange into a

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Speaker 1: new bond. Apparently they're they're going to take forty seven

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Speaker 1: cents on the dollar. As the way this thing reads, UM,

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Speaker 1: it's obviously not binding on other holders. But does this

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Speaker 1: set of precedent that people might uh, you know, we

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Speaker 1: end up following uh perhaps perhaps and and you're and

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Speaker 1: you're right. The the holders of a portion of the

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Speaker 1: g DPS debt cannot negotiate for everybody. They can only

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Speaker 1: negotiate what they're willing to take back for themselves. That's

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Speaker 1: one of the complications in getting to a resolution. If

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Speaker 1: you kind of expand that out across the eighteen different

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Speaker 1: types of bonds and across many thousands of different types

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Speaker 1: of holders. Uh, these individual negotiations are are very tough

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Speaker 1: to a very tough too to execute. To provide clarity

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Speaker 1: here in John, it's it's been a breadth of fresh

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Speaker 1: arity here actual adult talk about these emotions. We say

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Speaker 1: a piece of paper was a hundred, issued it a hundred,

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Speaker 1: and it's enjoyed a move down to forty with a

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Speaker 1: higher current yield but a much lower bond price. Within

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Speaker 1: the discussions right now, does everybody own this stuff at

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Speaker 1: a hundred facing a huge loss, or fifty facing a

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Speaker 1: modest loss, or most of the players owning at thirty

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Speaker 1: eight where they actually got a gain happening? You know,

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Speaker 1: it's it's absolutely all over the place. I think there

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Speaker 1: are a lot of very long term, very long term

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Speaker 1: buy and hold income driven investors UH for various Puerto

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Speaker 1: Rico securities and the more actively traded bonds that have

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Speaker 1: that have traded on a daily basis over the last

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Speaker 1: couple of years. So those in particular, the big ones

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Speaker 1: there are being general obligation bonds and Coffina bonds, those

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Speaker 1: have traded a great deal over the last couple of

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Speaker 1: years at deeply discounted dollar prices. So that sort of

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Speaker 1: implies that a lot of those holders have a cost

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Speaker 1: basis that is a lot that is significantly below par.

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Speaker 1: I think it's it's really really important. Michael, Well, the

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Speaker 1: bond that expires today was trading last trading in March

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Speaker 1: and two cents aside, Michael McKeon, I don't know how

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Speaker 1: we can fold this into text free bonds euro for

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Speaker 1: instance one oh one dropped back down below that now,

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Speaker 1: but definitely heading in the wrong direction the effort in Congress, John,

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Speaker 1: can can you boil it down to what it is

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Speaker 1: they want to do, because you hear all this talk

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Speaker 1: about from the politicians, but we're not going to bail

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Speaker 1: out Puerto Rico. But as I understand it, it it has

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Speaker 1: nothing to do with giving him cash. That is correct.

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Speaker 1: The House Natural Resources came bill's sort of the leading

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Speaker 1: bill on Capitol Hill in terms of five partisan support,

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Speaker 1: in terms of the potential to get out of the

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Speaker 1: get out of the House and get over to the

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Speaker 1: Senate maybe in the next few weeks. What that would do.

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Speaker 1: It does not send any tax their money down to

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Speaker 1: Puerto Rico. UM. It actually creates a structure, creates a structure, uh,

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Speaker 1: specifically a financial control board. Because people don't have recent audience,

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Speaker 1: They don't have all the due diligence that they need

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Speaker 1: with which to actually negotiate with the best information. We

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Speaker 1: know that Puerto Rico can't pay their debt, but could

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Speaker 1: they pay some portrait and uh, and then how does

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Speaker 1: each individual bond get treated? This board would help orchestrate that,

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Speaker 1: right John, very quickly or just a minute left the

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Speaker 1: Boston Globe. But a wonderful photo this morning of the

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Speaker 1: cruise ship wandering into Havannah's harbor. Is Cuba welcomes the

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Speaker 1: first U S cruise ship in nearly forty years. How

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Speaker 1: does Cuba investment play into the Porto Rico recovery if

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Speaker 1: and when it comes well? I think I view Cuba

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Speaker 1: as a as a potential competitor. UH. Puerto Rico has

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Speaker 1: had a decade of economic decline, although their tourism has

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Speaker 1: has held up fairly well, and UM further or more

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Speaker 1: investment in Cuba could could actually take away from from

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Speaker 1: Puerto Rico's recovery prospects were One of the concerns is

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Speaker 1: we're just not sure what segment of the Puerto Rican

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Speaker 1: economy is really poised to to do much better on

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Speaker 1: a going forward basis. If anything, the X migration is

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Speaker 1: probably going to accelerate. This has been fabulous. Here's your

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Speaker 1: valuable gentlemen. Thank you so much. From Puerto Rico. Mike,

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Speaker 1: somehow I think will continue to speak to him. Yes,

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Speaker 1: this is a story that's not going away. And they

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Speaker 1: have something like two billion bonds do July one. We

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Speaker 1: have two billion sets of economic data to get us

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Speaker 1: to Friday coming up, we look at the economy a

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